7th January 2021

Closing off austerity; the Thirteenth Day of Christmas

Welcome to Just Two Things, which I plan to write daily, five days a week, if I can manage it. Some links may also appear on my blog from time to time. Replies should come to me by email.

#1: Closing off austerity

One of the big questions since the pandemic started has been about whether governments (or bond markets) would get spooked by the levels of debt that economic support was creating, and try to revert to the austerity measures seen after the golbal financial crisis. My own view has been that this would be politically difficult, especially since there’s no sign of inflation, and financial markets seem relaxed.

So it was interesting to see the OECD’s Chief Economist, Laurence Boone, saying pretty much exactly this earlier this week to the Financial Times’ Chris Giles. The OECD is traditionally as mainstream as it gets when it comes to economic policy. Here’s the main points from the article:

After the crisis “people are going to ask where all this money has come from,” Ms Boone said, adding that governments would struggle to argue they could not spend to address climate change or to compensate those who lose out from policy reforms.

She also suggests that governments need to think longer-term about debt—which is pretty much what more Keynesian critics said about austerity.

Ms Boone said that countries should ditch short-term numeric targets for public deficits and debt and instead embrace long term sustainability goals, including accepting that public debt burdens would rise until economies returned closer to normal… Debt sustainability analyses should take into account that investors are willing to soak up the bond issuance of most advanced economies, and central banks will keep interest rates low for the foreseeable future, she added.

The OECD was pretty hawkish about austerity after the financial crisis, so this is a change of view. (She wasn’t in the job then):

“The mistake that we made was not a lack of stimulus during the trough in 2009 . . . the mistake came later in 2010, 2011 and so on, and that was true on both sides of the Atlantic,” she said. “The first lesson is to make sure governments are not tightening in the one to two years following the trough of GDP.”

This is a challenge for EU, whose treaties currently require countries to limit debt to 60% of GDP, and also to the currently stated intentions of the UK Spending Review.

#2. The thirteenth day of Christmas

I’m going to mix this up from time to time. And since it’s the Thirteenth Day of Christmas, here’s an extract from a poem from the unfortunate recipient of all those gifts—364 of them, as I was reminded shortly before Christmas.

The poem is by Dave Calder. I’ve shared the first few lines below, and the rest can be found here. It’s worth the time.

Well, I suppose I should be grateful, you’ve obviously gone
to a lot of trouble and expense – or maybe off your head.
Yes, I did like the birds – the small ones anyway were fun
if rather messy, but now the hens have roosted on my bed
and the rest are nested on the wardrobe. It’s hard to sleep…