Economics is the only field in which two people can share a Nobel Prize for saying opposing things.
Mark Blyth is a faculty fellow at the Watson Institute, professor of international political economy in Brown’s Political Science Department, and director of the University’s undergraduate programs in development studies and international relations. And in the above video he is wrong in many ways and here’s why:
- The only cure for a recession is a recession. This is because a recession is largely caused by distorted asset values which leads to the inefficient allocation of resources, the recession itself creates a correction. But if government intervenes to try and prevent or ameliorate the recession then they end up preventing the necessary correction.
- Suggesting the state spends money is always a bad idea because the state is woefully bad at spending money. They mis-allocate their spend and bring huge inefficiencies to the economy.
- During the last Labour government average family income went down in real terms for the last ten years, even whilst the world economy was booming. The reason for this was that there is only so much money in the economy so Gordon Brown’s profligate government spend reduced household income.
- The new Conservative Chancellor, George Osborne, has introduced far more progressive taxation. He is re-distributing wealth from the rich to the poor far more than Gordon Brown ever did.
- The British government under Gordon Brown borrowed money to spend at the top of the cycle in a display of woeful mismanagement, so there is no room to borrow much more than we are still doing. Already the interest payments are costing us about the same as we spend on education. If the government borrowed and spent much more our economy would spiral into oblivion.
- Government spending is largely parasitic. The wealth has to be generated by the private sector. The bigger the private sector the wealthier we are, the bigger the government sector the poorer we are. So to generate the wealth to enable the economy to grow and thrive we need to transfer resources (people, money, land etc) from the government sector to the private sector. Reducing government spend achieves this.
- The most powerful and efficient way to allocate resources in an economy is the market, this has been proved by mankind over thousands of years. Government spend largely ignores the market which makes it fundamentally economically inefficient.
- Recessions have been beaten many times in the past by vibrant private sectors working as the engine of the economy to create profits and thus wealth. Whereas government intervention can very, very easily lead to stagflation as we have now seen quite a few times. It is only the (very capitalistic) economic engines of the BRIC countries in our global economy that are preventing this now.
- The private sector is very resilient to economic shock because the market very quickly and efficiently reallocates resources. Government spend is slow and cumbersome and is totally unable to react to economic reality with the speed and efficiency that is needed.
- The banks are being forced to de-leverage themselves by Basel 3. This brings confidence to the sector. This is easier to do when there is slack in the economy and when there is less demand for credit. The stronger and thus more confidence inspiring banks that result will help power the world’s economies to new growth.
- Banks aren’t “too big to fail”. Washington Mutual failed in 2008 with assets of 307 billion. In fact hundreds of banks failed during the recent economic turmoil. It’s what happens. And their assets and business is then taken up by other banks, it is how the market works. That some governments chose to waste taxpayers money by ignoring the market by rescuing some banks had more to do with small minded nationalism than economic reality. Politicians didn’t want to see business done by banks on their turf going to banks on someone else’s turf.
There is more, but you get the idea. Let us hope that governments have learned the lessons of their financial ineptitude and seek to further reduce their spending in future. It is proven fact that a minimum state leads to a prosperous population.