Opinion

Anatole Kaletsky

Britain’s two cheers for Carney

Anatole Kaletsky
Nov 29, 2012 22:35 UTC

When Mark Carney, the respected head of Canada’s central bank, was appointed on Monday to the even more august position of governor of the Bank of England, Britain’s reaction was a characteristic blend of self-deprecation and smugness.

The self-deprecation was publicly expressed by an Opposition MP, Barry Sheerman: “Isn’t it a little surprising that the leading banking nation on earth could not find a British candidate for the job?” This feeling of mild embarrassment seemed to be quietly shared by many Britons in addition to the distinguished domestic candidates who were passed over.

The smugness has been much more in evidence. There has been a veritable orgy of self-congratulation among British politicians, media commentators and financiers at having nabbed “the outstanding central banker of his generation,” as George Osborne, the British chancellor, described his new hire. Embarrassment and praise are both justified, but for other reasons.

Starting with the embarrassment, there was actually no shortage of outstanding British candidates to run the BoE. All four Britons who publicly revealed their interest – Adair Turner, Paul Tucker, Terry Burns and John Vickers – have credentials that easily match Carney’s and would have put them in the top league of global central bankers alongside Ben Bernanke and Mario Draghi. This appointment, therefore, was definitely not an example of the “Wimbledon syndrome,” whereby Britain hosts the world’s best tennis tournament but never produces a player who is good enough to win.

Why, then, did Osborne go to Canada to fill the BoE post? The reason, and the true cause for British embarrassment, is the failure of Osborne’s economic policy, for which Sir Mervyn King, the departing governor, will now become a useful scapegoat.

Economic optimism now official

Anatole Kaletsky
Nov 23, 2012 14:55 UTC

Economic optimism is now official. The year ahead could be “a very good one for the American economy,” Ben Bernanke, the chairman of the Federal Reserve, declared on Tuesday. If he turns out to be right, these words could probably be applied to the world economy as a whole.

Since Bernanke, even more than other central bankers, has spent the past four years warning of perils such as the “fiscal cliff” and the dismal condition of the U.S. labor market, this statement, delivered in the carefully worded peroration of a speech to the prestigious Economic Club of New York, marks an important turning point.

Not because Bernanke has a crystal ball that offers him economic clairvoyance. But because his views have an enormous impact on business and financial sentiment around the world. And sentiment — especially about government policies — is the biggest problem for the world economy today.

Confessions of a deficit denier

Anatole Kaletsky
Nov 15, 2012 04:44 UTC

Here is a confession: I am a deficit denier.

To say this in respectable society is to be reviled as a self-serving rogue, worse than someone who denies climate change. Yet whenever I see a budget crisis — the U.S. falling off a fiscal cliff; austerity protests paralyzing Europe; Britain’s governing coalition tearing itself apart over missed budget targets -– I cannot resist the same conclusion: These countries’ leaders should take a deep breath, relax and stop worrying about deficits.

For there is actually no fiscal crisis in the United States, Britain or most European countries — including even Italy and Spain. Greece is another matter. But the very specific Greek disaster hardly justifies a generalized global panic about all government debts.

Consider some statistical facts. Interest rates are lower today than at any time in history, meaning that governments find it easier to borrow money than ever before. This hardly suggests impending bankruptcy.

An optimistic vision of Obama’s second term

Anatole Kaletsky
Nov 7, 2012 21:15 UTC

President Barack Obama’s re-election is good news for the world economy and financial markets. Of course a victory by Mitt Romney, unlikely though it was, might have been even better news, which is perhaps why stock markets fell sharply after the election. If Romney had won, his promised tax cuts and willingness to ignore budget deficits would have delivered a big stimulus to the U.S. economy and triggered a potential boom. But even without this fiscal boost, recent U.S. economic indicators, especially on housing, employment and bank lending, have pointed clearly in the right direction – and now there is every reason to expect these positive trends to accelerate.

While the election was a genuine obstacle to U.S. economic recovery, the problem lay not in the policies of either Obama and Romney but in the uncertainty about whose policies would be implemented and what each party might do to sabotage the other’s plans. This political doubt delayed investment decisions and hiring plans, and, in corporate bank accounts and bond markets, clogged the flood of new money created by the Federal Reserve. Now that the election is over, this dam will start to open. Political polarization, at least on economic issues, will start to ease. And the confrontation over taxes and public spending looming at the end of the year should be resolved with much less rancor than expected. All these optimistic conclusions follow from one crucial feature of the election result: The calculations of self-interest for politicians in Washington, for investors on Wall Street and for business people across America have now been transformed.

Let us begin with the business community. Much of it has been fiercely opposed to President Obama, particularly to his signature policies of universal healthcare and restoring Bill Clinton’s top tax rates. Given that, surveys suggested that many companies, and especially small businesses, suspended normal decisions on hiring and investment for months before the election, while they waited for Obamacare to be abandoned and tax hikes to be ruled out.

Would Romney be better for Europe?

Anatole Kaletsky
Nov 1, 2012 11:51 UTC

Looking at the opinion polls, there is no contest for which of the presidential candidates would be better for Europe. In a survey published this week by U.K.-based YouGov, 90 percent of European voters said they would support Barack Obama over Mitt Romney. But does this lopsided support correspond to the true interests of Europeans?

The numbers are not entirely surprising. The Republican stance on emotive social issues such as abortion, healthcare and environmental protection create an almost unbridgeable cultural divide for many Europeans. On foreign policy, there are understandable fears in Europe that a Romney administration would downgrade the United Nations, increase the risks of war in the Middle East, or possibly provoke confrontations with Russia over Georgia or NATO enlargement.

However, if we focus on the issues that are preoccupying Europeans now en masse — global economic stagnation and the deepening euro crisis — then we reach a different conclusion. Maybe Europe should root for Romney, despite his social views.

Is a revolution in economic thinking under way?

Anatole Kaletsky
Oct 25, 2012 14:15 UTC

Four years after the start of the Great Recession, the global economy has not recovered, voters are losing patience and governments around the world are falling like ninepins. This is a situation conducive to revolutionary thinking, if not yet in politics, then maybe in economics.

In the past few months the International Monetary Fund, previously a bastion of austerity, has swung in favor of expansionary fiscal policies. The U.S. Federal Reserve has committed itself to printing money without limit until it restores full employment. And the European Central Bank has announced unlimited bond purchases with printed money, a policy denounced, quite literally, as the work of the devil by the president of the German Bundesbank.

This week an even more radical debate burst  into the open in Britain. Sir Mervyn King, governor of the Bank of England, found himself fighting a rearguard action against a groundswell of support for “dropping money from helicopters” – something proposed by Milton Friedman in 1969 as the ultimate cure for intractable economic depressions and recently described in this column as “Quantitative Easing for the People.”

To escape the Great Recession, embrace contradiction

Anatole Kaletsky
Oct 18, 2012 16:39 UTC

Where will jobs and growth come from? As we enter the fifth year of the Great Recession, people all over the world are asking this question, but their political leaders are not providing any convincing answers, as has been made obvious in the U.S. presidential debate and the European Union summit this week.

The second presidential debate started with Jeremy Epstein, a 20-year old college student, pointing out that he had “little chance to get employment” and asking the two candidates for some reassurance and an explanation of how this would change. Mitt Romney offered lots of reassurance but not much explanation:

“I want you to be able to get a job. I know what it takes to get this economy going. I know what it takes to create good jobs again. I know what it takes to make sure that you have the kind of opportunity you deserve. When you graduate … in 2014, I presume I’m going to be president. I’m going to make sure you get a job. Thanks, Jeremy. Yeah, you bet.”

Is Mitt Romney a closet Keynesian?

Anatole Kaletsky
Oct 10, 2012 21:45 UTC

John Maynard Keynes said back in 1936 that “practical men, who believe themselves to be quite exempt from any intellectual influence, are usually the slaves of some defunct economist.” Keynes himself is now a seemingly defunct economist, but his influence connects the two most important events of the week and perhaps of the year: the sudden reversal of fortunes in the U.S. election and the powerful critique of overzealous fiscal austerity produced by the International Monetary Fund.

What connects these two events is an economic question that almost nobody dares to raise publicly, but that now seems destined to dominate the U.S. election and that hung over the IMF annual meeting in Tokyo this week: Do deficits really matter? Or, to restate the issue more precisely: Are government efforts to cut budget deficits counterproductive in conditions of zero interest rates when fiscal austerity suppresses economic growth?

This conclusion is strongly suggested by the IMF’s “World Economic Outlook” produced for the annual meeting. The WEO presented six detailed case studies, starting with Britain from 1918 to 1939, of economies that tried to reduce large public debt burdens with various policy mixes in the past 80 years. It concluded that two conditions were essential for success: very low interest rates and adequate rates of economic growth. If fiscal austerity produces high unemployment and economic stagnation, it is doomed to failure, causing the government’s debt burden to go up instead of down. After examining this historical evidence, the IMF report hinted strongly that at least two major economies were now caught in self-defeating debt spirals: Spain, where the debt trap is created by political pressures from the euro zone, and Britain, where the futile austerity is entirely self-imposed.

Does Murdoch’s paywall reversal signal a sale of The Times?

Anatole Kaletsky
Oct 3, 2012 22:16 UTC

Rupert Murdoch conceded defeat this week in his battle with Google and the Internet, an adversary even more powerful than the British government. Murdoch, uniquely among the world’s media magnates, decided two years ago to create a “paywall” for the London Times that could not be penetrated by Google and other “parasitic” search engines. In effect, the paper was cut off completely from the public Internet. As one of Murdoch’s newspaper managers later described this strategy: “Rupert didn’t just build a paywall; he circled it with barbed wire, dug a moat around it and put crocodiles in the moat.”

On Monday Murdoch relented. Times articles started reappearing in Google searches, although anyone wanting to read them still has to pay £1 for one day’s paper or £2 per week. Coincidentally, News Corp, Murdoch’s holding company, announced the departure of its chief digital officer, Jonathan Miller. And Murdoch himself stood down as chairman of Times Newspapers, the News Corp subsidiary that controls his upmarket British papers.

Murdoch’s U-turn sends two interesting signals. The first, already much discussed, is about the disappointing results of this paywall experiment – just 131,000 subscribers after two years. The second is about Murdoch’s global empire and the future ownership of the Times. Having spent 20 years at the Times before leaving it six months ago, these signals sound to me like an SOS.

Don’t panic about the fiscal cliff

Anatole Kaletsky
Sep 27, 2012 15:38 UTC

Who’s afraid of the fiscal cliff? Even as protests in Spain and Greece revive jitters in the euro zone, global businesses and investors have discovered a new political horror, this time in the U.S. The fear now in world markets is not so much about November’s election, but about the automatic tax hikes and public spending cuts that Ben Bernanke has dubbed the “fiscal cliff.” These fiscal changes, which come into force on Dec. 31 unless Congress passes new legislation, will tighten fiscal policy by some 4 percent of GDP, comparable to the austerity programs in Spain, Italy and Britain.

Given what fiscal austerity has done to Europe, the worries are understandable, but everyone should calm down. A drastic fiscal tightening is almost inconceivable after the election, because politics, economics and markets interact in Europe and America in opposite ways.

Let’s start with economic policy. The warnings from the Federal Reserve to U.S. politicians as the fiscal deadline approaches are all against allowing the legislated tax increases and spending cuts to take effect. Thus the Fed is giving politicians advice that is opposite that of the European Central Bank and the Bank of England.

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