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Osborne/Today - endless equivalence

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Tony Curzon Price was Editor-in-Chief of openDemocracy from 2007 to 2012, where he is now contributing editor and technical director. He blogs at


Tony Curzon Price (London, openDemocracy): George Osborne gave the Today program an opportunity to demonstrate the great emptiness of the media-political conversation this morning.

Paraphrasing, here was the interview:

SM (interviewer): "What is wrong with Darling's plan?"

GO: "You can't spend your way out of a recession with a Keynesian splurge on big projects"

SM: "What would you do differently?"

GO: "Freeze council tax, give small businesses help and let the bank of England cut interest rates, putting money in people's pockets."

SM did not then ask why this wasn't itself Keynesian splurging. There are three points here:

1. what should be the level of fiscal largesse?

2. is it better to spend this mainly on public investment or to delegate that spending to households and small businesses?

3. who eventually pays for fiscal largesse?

GO pretended to answer "1" by answering "2", and Today let him get away with it. "3" is a very interesting question which GO proposed one answer to that was never challenged by SM. The point about "who pays?" is closely linked to Ricardo's equivalence, the argument that claims that there is no difference between financing government spending through borrowing or through the raising of taxes. Public borrowing has to be paid back, eventually through higher taxes. Taxpayers, if they understand this, will know their lifetime consumption possibility has fallen by exactly the amount of the public spending, so who cares if it is financed through taxes now or higher taxes later (higher in order to cover interest payments)?

The argument is fine in a classical regime - as long as we do not currently face the risk of a Keynesian recession. The point of a Keynesian recession is that capital markets do not work; hence the equivalence argument based on households comparing present and future consumption is simply not applicable. The only question that Today's interview should have drilled towards was this: does GO think there is no risk here (there is certainly a case to be made -- Tim Congdon has made it recently -- but is GO really taking the political risk of supporting this view)? Or does he deny Keynesian efficacy in such an eventuality? 

One day, Today will ask the hard questions.

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