“All within the state, nothing outside the state, nothing against the state.” Benito Mussolini
There's been a deal of comment about a little spat between Larry Summers (who is I discover a top American lefty economist chap) and George Osborne, Britain's Chancellor of the Exchequer. The debate between the two can be summed up as "hey you, yah boo, I'm right and you're wrong." Except it wasn't as witty or intelligent as that. It came across as a rather pompous version of an exchange on Question Time (and just as edifying).
However, I was curious about Mr Summers opinions and what he supposes we should be doing differently. Essentially the gist is here:
"It’s tragic that we are bequeathing to our children a deficit in the form of massive deferred maintenance on our infrastructure. If at a moment when we can borrow money for 30 years in the 3pc range, in a currency we print ourselves and the construction unemployment rate is in double digits, if that is not the moment to fix Kennedy airport, when will that moment ever come?"
Rather than have a money deficit, we have instead an 'infrastructure deficit'. Which supposes two things - we actually need that infrastructure and, more importantly, government borrowing is the only way to provide it. At the heart of this argument is a belief (which has nothing at all to do with macroeconomics but is absolutely an ideological position) that, in Isabella Kaminska's words:
...the only productive use of capital is increasingly through government spending.
This ideological position - the conviction that the only good investment is through government - is a core tenet of what I call the 'New Fascism'. This is a philosophy that adopts the same assumptions about society as Mussolini and his colleagues did in designing the Fascist state - for draining the Pontine Marshes read floating airports, high speed railways and freeways rammed through previously attractive small towns.
If (and this is a big question) it is right to raise government borrowing, why does Summers surmise that spending it without return on expensive and unproductive infrastructure programmes is better than cutting taxes on businesses and consumers? If businesses have more money will they not invest that money? And will that investment not generate a return - a real one - unlike those grand projects Larry likes?
And if we cut taxes for consumers won't they spend that money buying the things that the businesses are making? Perhaps on houses, maybe on cars? Isn't that a rather more efficient approach to stimulus that tying loads of borrowed cash up in incompetent government procurement programmes?
The truth is that Larry Summers is a New Fascist - wanting a planned, directed, controlled, state-led system rather than an untidy, exciting and people-led system.
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There are a number of issues being conflated here.
ReplyDeleteThere are certain things are of a size or a nature where governments either need to do them or be closely involved in them (for example, building warships or HS2). It's why we do actually need governments.
The correct point that Summers is making is that if there are such things that should be done, now is actually, economically, quite a good time to do them. Both because of high unemployment and, more importantly, because of the low (possibly negative interest rate on an NPV calculation) cost of HMG (and USG) borrowing.
Your correct points, and there may be more, are:
1. Just because somethings should be done, doesn't mean that 'this specific grand idea' "should" be done.
2. Just because government needs to be involved (planning permission, public enquiries, changes to the law etc), doesn't mean that the government should either undertake the project itself or even be the customer for the project. It doesn't do either very well.