Neo-liberal thinking!

How many basic errors can you pick up in this posting?
http://johnredwoodsdiary.com/2013/12/21/rebalancing-the-economy-2/

To be fair to Mr Redwood, he does allow some reasoned criticism of his postings , but he didn’t allow this one past!

………………………………………………………………………………….

@Mr Redwood,

 “the same rules apply to a government as to a company or person” 

But they don’t! Not governments like the UK , Australia, USA, Japan etc who are in control of their own currencies. Companies and people are users of a currency. We have to get money before we can spend it. Governments are issuers of a currency. They have to issue the currency before anyone can spend it. Where else can we get it from? Any government which issues its own currency has to be in debt. If it isn’t, it means it hasn’t issued anything.

Governments like Greece are also users of a currency. Thay have exactly the problems you describe.

Governments which issue their own currency have to get it right. They should issue not too much. This causes inflation. They need to issue not too little either. This causes deflation or depression. People lose their jobs.

One mistake often made by sovereign currency governments is to try to peg their currencies to another currency- as with the examples you give (Argentina, 60′s and 70′s Labour governments) . They had to borrow at high interest
rates to try, usually unsuccessfully, to maintain that peg. They are losing a key advantage in having their own currency.

Mrs Thatcher’s government was originally much smarter and allowed the pound to fall close to parity with the US$ in the early 80′s. Life went on pretty much as normal and hardly anyone remembers this now. They haven’t forgotten the events of Black Wednesday though! That was again caused by the UK government trying and failing to maintain a peg with the DM. Big mistake!

The ‘unsustainable burden for future taxpayers’ argument is odd. Future taxpayers will consume the products of their future economy. They won’t be able to send anything back in time to us, and we won’t be able to leave them
anything much to consume directly. If at some future time the Chinese decide to spend some of their accumulated money, that will be good. If they decide to order lots of Rolls Royce jet engines, for example, politicians will
try to take credit for the order. It will be hailed as a good thing and of course it will be.

What we can leave future taxpayers is a successful and well functioning economy.

PS: and a clean and safe environment.

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One response to “Neo-liberal thinking!

  1. “…you need increased consumption to sustain growth and to generate the need for investment.” says John Lockwood.
    He doesn’t seem to realize that it matters as to how that increased growth is achieved. If it is based on increased use of fossil fuels and the Earth’s resources we will eventually deplete them sufficiently to increase their costs and so cause inflation and lack of growth. We will also be destroying the environment we depend on.
    If, alternatively, we base that growth on renewable fuels and resources
    we not only preserve the environment but also provide opportunities for investment to sustain that growth.
    Bill439

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