Sunday, June 12, 2011
Victoria Chick and Ann Pettifor show that increased public spending REDUCES the debt.
This is a nice study by the above two authors. They look at the UK national debt and deficit figures since the early 1900s, and show that the effect of “fiscal consolidation” is counter intuitive. That is, attempts to pay back debt are self-defeating: they result in a rising debt.
As they say, “The empirical evidence runs exactly counter to conventional thinking. Fiscal consolidations have not improved the public finances.”
Also Anne Pettifor’s blog looks interesting.
Afterthought (12th June): The claim by Chick and Pettifor that attempts at what is now called “fiscal consolidation” are self-defeating might seem to clash with the claim I have made on numerous occasions, e.g. here, namely that the debt can be reduced or abolished by printing money and buying the debt back (to over simplify a bit). In fact there is no clash. C & P refer to cutting public spending (or raising taxes) and using the money to pay off the debt. In contrast, my proposal is to leave public spending and taxes more or less untouched (but not entirely untouched) and basically pay off the debt, to repeat, with “new” or “printed” money. These are two very different scenarios.