Not getting it right on booms, slumps and austerity

By Ann Pettifor
March 16, 2016

The following from Professor John Weeks and Ann Pettifor of Prime Economics was published on 15 March 2016, a day ahead of the UK Budget speech by the Chancellor, in the Guardian newspaper:

“Andrew Harrop’s article on [Shadow Chancellor] John McDonnell’s public borrowing for investment points out its improvement on the chancellor’s deficit obsession (‘John McDonnell’s new fiscal rule is strong, but it’s no election winner,, 11 March).

Of particular concern is [Chancellor] George Osborne’s determination to “balance the books” by cutting current spending on the disabled. To McDonnell’s widely accepted principle of borrowing to invest so as to expand the nation’s income at a time of private sector weakness, we add a complementary guideline for macroeconomic stability: adjust current expenditure for demand management.

“If as is now the case, interest rates are low, exports contract and demand remains weak, responsibility falls on the public budget to prevent recession by expanding income.

“Once started, investment expenditures are relatively inflexible to adjust, making current (day-to-day) expenditure the rational choice for demand expansion. Come that happy day when the economy starts to overheat, current spend should be reduced.

As Keynes argued: the boom, not the slump, is the time for austerity. It is that simple.

 -- Ann Pettifor, Prime Economics (

-- John Weeks, SOAS, University of London

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