Some recent items of interest

March 17, 2016


Martin Wolf at the FT says “Chancellor George Osborne is in traps of his own devising” and adds that “Fiscal gimmicks make it almost impossible to tell what he is doing to the economy”

“What was the purpose of Wednesday’s Budget announcements? One aim was to escape the painful implications of the Office for Budget Responsibility’s new forecasts. A second goal was to advance a slogan: after years of cosseting the elderly, the government now says it plans to “put the next generation first”. A third objective was to spray policies upon the nation, the most important of which — abolition of local authority control over education — had nothing to do with fiscal policy.

In all, George Osborne is looking increasingly like Gordon Brown, his Labour predecessor but one: both the master of the government’s domestic policies and a purveyor of catchy gimmicks. Nothing that the chancellor of the exchequer announced in the Budget is of great relevance to the economic or fiscal health of the country. Indeed, on balance, the UK would have been just as well off without it. This is not to say that none of the individual measures is worthwhile. But they could have been proposed and justified far better outside a budgetary framework.

For reasons known only to himself, Mr Osborne decided to target an overall fiscal surplus by 2019-20. Just four months ago the OBR told him he was probably on target to achieve this objective. Now it has revised down the potential growth of productivity substantially. This may well be right: in truth nobody knows precisely what the potential rate of growth is going to be”


The excellent economist Steve Keen conducts “A Thought Experiment On Budget Surpluses”

“While conservative parties—like the USA’s Republicans, the UK’s Tories, and Australia’s Liberals,—are more emphatic on this point than their political rivals, there’s little doubt that all major political parties share the belief that the government should aim to have low government debt, to at least balance its budget, and at best to run a surplus

So is it “right to run a surplus”? Let’s consider this via a little thought experiment. The numbers are far-fetched, but they’re chosen just to highlight the issue:

Imagine an economy with an GDP of $100 per year, where the money supply is just $1—so that $100 of output each year is generated by that $1 changing hands 100 times in a year. And imagine that this country’s government has accumulated debt of $100—giving it a debt to GDP ratio of 100%—and it decides to reduce it by running a surplus that year of 1% of GDP. And imagine that it succeeds in its target.

What will this country’s GDP the following year, and what will happen to the government’s debt to GDP ratio?

The GDP will be zero, and the government’s debt to GDP ratio will be infinite.

Huh? The outcomes of this policy are the opposite of its intentions: a policy aimed at reducing the government’s debt to GDP ratio increased it dramatically; and what is perceived as “good economic management” actually destroys the economy. What went wrong?”


Patrick Cockburn asks is it “End Times for the Caliphate?”

“The war in Syria and Iraq has produced two new de facto states in the last five years and enabled a third quasi-state greatly to expand its territory and power. The two new states, though unrecognised internationally, are stronger militarily and politically than most members of the UN. One is the Islamic State, which established its caliphate in eastern Syria and western Iraq in the summer of 2014 after capturing Mosul and defeating the Iraqi army. The second is Rojava, as the Syrian Kurds call the area they gained control of when the Syrian army largely withdrew in 2012, and which now, thanks to a series of victories over IS, stretches across northern Syria between the Tigris and Euphrates. In Iraq, the Kurdistan Regional Government (KRG), already highly autonomous, took advantage of IS’s destruction of Baghdad’s authority in northern Iraq to expand its territory by 40 per cent, taking over areas long disputed between itself and Baghdad, including the Kirkuk oilfields and some mixed Kurdish-Arab districts.

The question is whether these radical changes in the political geography of the Middle East will persist – or to what extent they will persist – when the present conflict is over.”


Rather worryingly Nathan J. Robinson writes in ‘Current Affairs’ that “Unless The Democrats Run Sanders, A Trump Nomination Means A Trump Presidency”. I do hope he is wrong.

“Instinctively, Hillary Clinton has long seemed by far the more electable of the two Democratic candidates. She is, after all, an experienced, pragmatic moderate, whereas Sanders is a raving, arm-flapping elderly Jewish socialist from Vermont. Clinton is simply closer to the American mainstream, thus she is more attractive to a broader swath of voters. Sanders campaigners have grown used to hearing the heavy-hearted lament “I like Bernie, I just don’t think he can win.” And in typical previous American elections, this would be perfectly accurate.

But this is far from a typical previous American election. And recently, everything about the electability calculus has changed, due to one simple fact: Donald Trump is likely to be the Republican nominee for President. Given this reality, every Democratic strategic question must operate not on the basis of abstract electability against a hypothetical candidate, but specific electability against the actual Republican nominee, Donald Trump.

Here, a Clinton match-up is highly likely to be an unmitigated electoral disaster, whereas a Sanders candidacy stands a far better chance. Every one of Clinton’s (considerable) weaknesses plays to every one of Trump’s strengths, whereas every one of Trump’s (few) weaknesses plays to every one of Sanders’s strengths. From a purely pragmatic standpoint, running Clinton against Trump is a disastrous, suicidal proposition.”

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