progress is not the elimination of struggle, but rather a change in its terms’ - Aneurin Bevan

fiscal fetishism

Joseph Stiglitz, the Nobel prize-winning economist, has praised Labour's action during the banking crisis and is warning of the 'fiscal fetishism' that places a strong emphasis on deficit-reduction as a road to recovery.

He says of the financial markets:
"If there is a speculative attack against you it is not an issue of appeasement but a judgement about whether they can break your back."

He goes on, with the confidence of a man who, as World Bank chief economist about a decade ago, watched such assaults on countries in the same way you might watch a Saw movie: "You're dealing with a crazy man, you're asking what I can do to placate a crazy man: Having got what he wants he will still kill you." 

The professor appeals, instead to reason: "What I call 'fiscal fetishism' is really dangerous," he says. "Because cutting back means the economy goes into a downturn and the markets lose even more confidence, as it will trigger another recession or depression." If we do do that, he says, we will get the dreaded "double dip" recession. He urges ministers instead to tell the opposition and those short-sleeved, short-sighted, short-memoried traders in the City to consider the investment and returns that will come from all the public spending we are doing.
The response should not be to cave in, but to move in:
If the financial markets refused to buy British government bonds, or gilts, as Mr Cameron has suggested they soon might, the Bank of England could buy them instead, Mr Stiglitz said, as it did during its recently paused programme of quantitative easing, which mopped up about £200bn of gilts.

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