Stumbling and Mumbling
There’s a point I made in my previous post that I’d like to emphasise. It’s that voters support austerity for the same, sometimes mistaken, reason that they support price controls – because they under-estimate the extent to which emergent processes sometimes produce benign outcomes.
What I mean is that what free marketeers say about the price system – that it is the benign outcome of uncoordinated individual decisions – is also true of government borrowing now.
This borrowing is the counterpart and effect of decisions by millions of companies and households (pdf) around the world to save and not invest*. Given that much of the rest of the world wants to be net savers, somebody must be a net borrower – and that somebody includes the UK government.
This borrowing is as John says a solution not a problem – because it is helping to sustain demand.
At this point I could write thousands of words about MMT. But why bother? Just look at real bond yields. These tell us that financial markets are untroubled by government borrowing – because the same net savings which cause this borrowing also cause low interest rates.
In this sense, the division of opinion is not between left and right but between economists and non-economists. Most economists are more or less relaxed about the deficit for the same reason that they often support freeish markets – because they appreciate that individuals’ uncoordinated decisions sometimes have tolerable outcomes. Non-economists, being less aware of this, are keener for the government to “control its borrowing” just as they want state control over other aspects of the economy.