links for 2010-06-16

One Medium-Sized and One Small-Sized Herbert Hoover

Let's really hope they don't mean it. Let's really hope that they are bullshitting us.

Brand-spanking-new British Prime Minister David Cameron and Swedish Prime Minister Fredrik Reinfeldt:

Reining in Europe’s deficits is  first step: We first met in Stockholm three years ago. Our discussions were all about issues such as education and climate change. The economy barely came up. But then the world was shaken by an economic catastrophe that toppled banks, destroyed businesses and ruined countless livelihoods. The wreckage is clear in Europe today: unemployment has risen by more than 7m; almost €150bn has been wiped off European Union output; average EU debt levels have risen to almost 80 per cent of gross domestic product. By any measure, these are shocking statistics.

So when we meet in Brussels on Thursday, the economy will dominate discussions. We are agreed there are four clear steps we need to take to ensure that Europe thrives and prospers.

First we need to get a grip on our debts. Because Sweden has been living within its means it is one of the member states that has weathered the crisis best. In Britain, on the other hand, the new coalition government has inherited the largest budget deficit of any EU country. Next week George Osborne, the chancellor, will set out a comprehensive plan to tackle the UK’s deficit in an emergency Budget. There are difficult decisions to make but it is essential governments cut back on unnecessary spending. We have to accept there are things we can no longer afford. Both of us are determined to work with other leaders to achieve a consistent approach across the EU...

The krona in dollars:

Swedish Krona: CURRENCY:SEKUSD quotes & news - Google Finance

Can anyone say what shape the Swedish economy would be in today had they not depreciated their currency against the dollar by 30% in 2008? Yes? You there, in the back, in the blue shirt...

Lord Skidelsky has things to say as well:

Once again we must ask: ‘Who governs?’: In one sense, next week’s emergency Budget is simply the logical working out of an intellectual theorem... that market economies are always at, or rapidly return to, full employment... that a stimulus, whether fiscal or monetary, cannot improve on the existing situation. All that increased government spending does is to withdraw money from the private sector; all that printing money does is to cause inflation. These propositions are a re-run of the famous “Treasury view” of 1929....

[But] politicians clamouring for cuts in public spending do not cite Chicago University economists. They talk about the need to restore “confidence in the markets”. The argument here is that deficits do positive harm by destroying business confidence... fear of higher taxes, fear of default, fear of inflation.... The parallel with what happened in 1931 is irresistible. In February of that year, Philip Snowden, the Labour government’s chancellor of the exchequer, set up the May Committee to recommend cuts in public spending. The committee projected a budget deficit of £120m, later raised to £170m, the latter figure amounting to about 5 per cent of gross domestic product, and proposed raising taxes and reducing spending to “balance the budget”.... Keynes was one of the very few who stood out against the herd.... When the Conservative-Liberal coalition that had succeeded the Labour government introduced an emergency budget in September 1931, Keynes again stood out against the chorus of approval. The budget was, he wrote, “replete with folly and injustice”. He explained to an American correspondent that “every person in this country of super-asinine propensities, everyone who hates social progress and loves deflation, feels that his hour has come and triumphantly announces how, by refraining from every form of economic activity, we can all become prosperous again.”

Conservative spokesmen often claim that fiscal consolidation causes economies to recover. If so, the effect of the outbreak of public frugality in 1931 was curiously roundabout. Cuts in salaries produced a “mutiny” of naval ratings at Invergordon, suggesting that the empire was crumbling. This was enough to force Britain off the gold standard. A combination of sterling depreciation and lower interest rates revived exports and started a housing boom. But there was never a complete recovery until the war. Such evidence for the success of the cuts is the stuff of castles in the sky.

We are about to embark on a momentous experiment to discover which of the two stories about the economy is true...

I doubt it, actually: I think that Cameron and Reinfeldt are cynical enough to talk about the importance of moving immediately to budget balance while public-spirited enough to delay "fiscal consolidation" for years and years.

I hope so.