Samuel Brittan

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"There are not even clearly defined schools of thought"

A well-known historian called upon economists to abandon the gods of their profession.
If only there were still such gods. There are not even clearly defined schools of thought.
A typical discussion will consist of a series of overlapping points of view, leaving the innocent listener at best “confused at a higher level”.
What follows is an attempt to outline the main issues.
Samuel Brittan, FT July 9 2009

The first issue is that of an economic stimulus.
But opponents of a stimulus have surpassed themselves in ingenious objections. They say that people will save rather than spend any tax cuts because of justified fears of a later reversal, and that government spending will be too late.

The main proponents of a stimulus have been the US and British governments. The main “sound money” opponent has been the German chancellor Angela Merkel.

Fasten your safety belt for the highly technical question of whether more money or more credit is required. The popular view is that the flow of credit needs to be re-established.
The monetarist case has been well expounded by Tim Congdon in the June issue of Standpoint. “

"Keynes once described the work of Friedrich Hayek as "an extraordinary example of how, starting with a mistake, a remorseless logician can end up in Bedlam". Since September 2008 the world economy has been closer to Bedlam than at any time since the end of the Second World War.

The next question is whether the main danger is inflation or deflation.

The most intractable question is what to do about the banks.
Looking further ahead, there is the question of how far to go in separating deposit from investment banking, for instance on the lines of the US New Deal’s Glass-Steagal Act.

Even more political is the question of international co-ordination.
It does not take a genius to see that a stimulus is likely to be more powerful if several countries act together. But governments differ in beliefs as well as interests.
Countries with floating exchange rates have more freedom of manoeuvre.

What to do about long-term budget deficits
Are government budgets like those of families or firms which need to balance, except for investment narrowly defined?
Or should they be seen as balancing mechanisms to offset spending excesses or deficiencies in the rest of the economy?
Keynes’s analysis pointed to the latter; but he never really resolved the issue.

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