Martin Wolf has joined the debate between me and Tim on the likely frequency of massive crises.
In the debate between Tim Leunig and Giles Wilkes I am closer to the latter. I think it must be too pessimistic to expect crises like this every ten years. Indeed, that would clearly be intolerable. We would have to move towards balkanised and repressed finance if credit booms and collapses on the present scale were to be expected. It would be far better surely to plan to escape from the present crisis and introduce changes in monetary and regulatory policies that would greatly reduce the risks of an early repeat. If that means more control over finance than before, so be it
I like this analogy between risk financial ideas and building on a floodplain. The piece makes the same point I bang on about: limit leverage, sweat the details afterwards.
David Smith argues that we should not worry too much about spending cuts hurting the economic recovery:
Over that period, GDP rose £224 billion, just over 20%, in real terms. Government spending rose by just over £50 billion. It contributed only just over a fifth of growth even when ministers were spending fit to bust. This kind of static comparison, more-over, probably overstates the public contribution. Had spending not risen, and the taxes needed to pay for it, private-sector growth could have been stronger.
No. The prior “good” period was one where finance was doing its job, and less G would not doubt have produced more private spending/investment. But in a financial/balance-sheet/credit-mechanism depression, the impact of lost government spending might have a large multiplier – nothing else springs in to take it’s place. But it is certainly very interesting to be reminded that Brown did not take it ALL.