Robert Skidelsky on Deficit Cutting

Robert Skidelsky is a very prominent economist, not least for his biographies of Keynes.  As you can imagine, he is more Keynesian in his leaning as an economist than some.  Right now, with the austerity of the Coalition and others the flavour of the moment, people are much less inclined towards Keynesian arguments.

The feel now is that we need to cut the deficit - this is the big problem, not the fact we're stuck in an anemic recovery from the recession of 2008-9.  Skidelsky has written this article in Project Syndicate on the issue, and I think the punchline has to be:

Events and common sense drove them to deficit finance in 2009-2010, but they have not abandoned the theory that depressions cannot happen, and that deficits are therefore always harmful (except in war!). So now they vie with each other in their haste to cut off the lifeline that they themselves extended.

Policy Uncertainty

One thing we'll talk about second term is the impact uncertainty can have on economic outcomes.  In other words, if people are uncertain, they do less: They don't take big decisions.  In particular, they don't make investment decisions.

A big thing in the US currently is the impact of uncertainty over government policy, and its impact on the economy.  Tyler Cowen at Marginal Revolution (a blog well worth subscribing to for both terms of your econ101 experience) has this post about it.  Some people suggest that uncertainty over policy is the reason why the US economy is not recovering strongly.  These people are generally Republicans responding to the fact they are out of power and trying to lay all the blame at the foot of the in-power Democrats.

As Cowen points out though, there's much more at stake - not least the restructuring that's going on in the US economy.

The main point I think is: Don't trust anyone who tries to tell you there's a single cause for why the economy is in the mess it's in, either this side of the Atlantic or the other.  There's many, many causes, and a huge number of alternative solutions out there that may or may not work.  The economy is a complicated beast, and far too complicated for single-cause explanations...