Hold onto your hats, China is getting sleepy

Come tumbling down?

Britain is in deepening recession. Growth in the United States is slowing. The prospects for the euro darken by the day. The global economy is not so much waiting for the other shoe to drop as bracing itself for an entire branch of Foot Locker to land on its head.

One particularly precariously perched size 14 is China. The country which, since abandoning the immiserating economic madness of socialism and moving towards capitalism, has seen unprecedented increases in wealth for its people, now faces a bust.

In the first quarter of 2012 the Chinese economy grew at a rate of 8.1 percent, spectacular by western standards but China’s slowest in three years. The World Bank’s predicted growth for China in 2012, 8.2 percent, would be its lowest since 1999.

It is dangerously close to the 8 percent China watchers generally consider sufficient to absorb workers moving to towns and cities from the countryside, and maintaining social stability.

How has China come to this pass? Since the mid-1990s the People’s Bank of China, the central bank, has kept the yuan pegged to the dollar. This has had the effect of keeping Chinese goods competitive with US produced goods in spite of a depreciating dollar.

This has prompted angry outbursts from Congress about currency manipulation, a bizarre charge coming from the country which counts Quantitative Easing and Operation Twist among its bag of monetary tricks.

Another effect, however, has been to foster a credit boom in China. In order to follow down a dollar being eroded by constant monetary expansion the Chinese have been driven to initiate their own expansion to keep pace and maintain parity.

In other words, in return for all those clothes and consumer goods they export to the United States, China imports the Federal Reserve’s monetary policy.

The People’s Bank put their pedal to the monetary metal in 2008 to combat the post Lehman global downturn. Interest rates were slashed and borrowing rocketed, loan growth totalling 87 percent of GDP in the following five years.

American style monetary policy has had American style effects. As interest rates fell property looked a better place to stash you’re your wealth and a real estate boom got under way. According to the IMF the average ratio of house prices to earnings reached 20 in Beijing and 14 in Shanghai, “triple the levels in US cities during the subprime bubble

With such returns available, and the funds readily accessible to fund it, construction boomed. The BBC reports that since the start of 2009 China has built 2.3 billion square metres of residential property space with another 3.2 billion in the pipeline. This is floor space for between 200 million and 250 million people but, according to the World Bank, even with China’s rapid urbanisation, it will take 15 years for 200 million Chinese to make the switch from rural to urban life.

The orgy of over construction is most starkly seen in newly built but deserted cities like Ordos City, built for 1 million but housing no more than 28,000.

In October 2010 the People’s Bank set out to do what no monetary authority has ever managed: engineer a soft landing from a credit boom. Interest rates rose and the property boom cooled.  In November new home prices in Beijing fell by 35 percent from October.

But the problem with a credit boom is that it fosters malinvestments which will never generate a return sufficient to cover their funding costs if credit conditions are ever allowed to tighten (let alone reflect the economy’s underlying time preference).

So it is with China. An economy which had loaded itself with cheap debt on such a massive scale couldn’t cope with higher interest rates.

The People’s Bank thus finds itself caught in the same ratchet as many western economies. Interest rates decline and spur a boom. Inflation follows and interest rates rise but not to the previous levels. Even so, the boom turns to bust and interest rates are cut again leading to another boom…

As in Europe, Britain, and the United States, China might well find that its interest rates only move in one direction: downwards. Convergence wasn’t supposed to be like this.

The People’s Bank has reacted by lowering the official one-year borrowing rate and the one-year deposit rate by 0.25 percent each to 6.31 percent and 3.25 percent respectively. Industrial activity is picking up and prospects have brightened for now.

But how long before we are back where we were in October 2011 when pressure grew for China’s monetary authorities to tighten?

When China wakes the world will tremble said Napoleon. Let’s hope the same isn’t true when it nods off

This article originally appeared at The Commentator

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Got milk? – Yes, plenty thanks

Moo-tiny

There is something about the countryside. Perhaps it is its beauty; perhaps it is its seemingly ancient and unchanging way of life. Whatever the reason, the countryside and the agricultural sector has the ability to send otherwise reliable economic compasses haywire.

The Telegraph illustrated this last week when it threw its weight behind the burgeoning campaign to get a ‘fair’ milk price for dairy farmers.

This language ought to set people’s teeth on edge. What is a ‘fair’ price? Whenever one person is willing to sell a good or service at a given price and another is willing to buy it at that same price the exchange will take place. Both parties might prefer some other situation; the seller might prefer a higher price and the buyer a lower one. Doubtless both would consider their respective preferred situations ‘fairer’.

But that is the beauty of an exchange economy. It reconciles differing, subjective ideas of ‘fairness’ (of which there are as many as there are economic agents multiplied by the number of transactions they undertake) to arrive at a mean of what society deems ‘fair’.

Food is an essential for life. Thus its price elasticity is low, meaning that when its price increases people do not curtail their consumption, they just pay more. The alternative is starvation. Unless they can’t pay more, then they will curtail consumption.

Increases in food prices hit those on lower incomes hardest. They will pay a disproportionate share of the ‘fair’ price. Well-heeled Telegraph hacks might want to ponder that before pontificating.

Campaigns for ‘fair’ prices are simply attempts by some sectional interest group to use either the bully pulpit or legislation to assert its particular notion of ‘fairness’ over the market derived societal mean.

The Telegraph isn’t alone in being lured into a thicket of economic nonsense. In the Guardian dairy farmers, Helen and David Banham, told us that “The typical day for us starts at 5am and finishes at any time after 7pm, seven days a week, 52 weeks a year, Christmas Day, New Year’s Day; days when you don’t feel like getting out of bed and wished you could have a day off sick; irrespective of the weather, from -15C to 30C, rain, snow or sun”

Interesting enough but from an economic perspective completely irrelevant. The value of a good or service to society is not a function of the amount of effort expended on its production. That was the lesson of the Marginalist revolution in economics led by Carl Menger, William Stanley Jevons, and Leon Walras.

The marginalists showed that value was not derived objectively from the labour expended in production, as classical economists liked Adam Smith and Karl Marx had believed (examples to the contrary were too numerous to name), but was a subjective property assigned by individuals.

As sometime economist Bishop Whatley put it, “Pearls are not valuable because men dive for them; men dive for them because they are valuable.” If we want to judge the ‘fairness’ of a price the effort expended by Mr and Mrs Banham is neither here nor there.

But it would be harsh on the classical economists to tar them with the same brush of economic ignorance as the ‘fair’ price people. Smith understood that one of the vital sources of The Wealth of Nations was increasing productivity, the amount of output we can produce with a given amount of inputs; think of his famous pin factory.

As Matt Ridley recorded in The Rational Optimist

“A half-gallon of milk cost the average American ten minutes of work in 1970, but only seven minutes in 1997. A three-minute phone call from New York to Los Angeles cost ninety hours of work at the average wage in 1910; today it costs less than two minutes. A kilowatt-hour of electricity cost an hour of work in 1900 and five minutes today”

This is caused by increasing productivity, producing more with as much or the same with less. Increasing productivity, making things cheaper, allows us to buy things we couldn’t before. It is what increasing wealth is all about.

236 years later this seems to have been lost on the ‘fair’ price people. As Tim Worstall explained in the Telegraph, between 2000 and 2010 the milk yield, the amount of milk produced per cow, increased by 22 percent, an increase in productivity.

If demand for milk is unchanged then obviously, as Worstall points out, the answer to the Telegraph’s question – “Does Britain need dairy farmers?” – is: fewer than we have now.

The productive factors freed up can go into producing something else. It might be something that doesn’t exist yet, but aren’t we better off than our ancestors now that increased agricultural productivity means that we can produce many times the amount of food with a fraction of the workers so that we can eat well and have people producing TVs, fridges, planes…?

Under market capitalism prices are the signals which direct resources toward more productive ends. Despite what the Guardian thinks, farmers are not entitled to a profit. Profits must be earned by taking inputs and adding value such that society judges your outputs to be worth more than your inputs.

If society thinks your outputs are worth less than your inputs – you are destroying value in other words – you will incur a loss. As Worstall puts it, society is telling you to stop so that the resources you are using can be utilised by someone else who will add value to them.

Joseph Schumpeter called these “gales of creative destruction”. Next time right wingers argue that we shield dairy farmers from these, replace ‘dairy farmers’ with ‘coal miners’ and ask why they argued for leaving them to face their full force.

True, HE Bates never wrote a novel romanticising coal mining, but economic logic is economic logic. We can’t embrace it when it affects left wing union members and reject it when it affects Tory voting rural dwellers. That really wouldn’t be fair.

This article originally appeared at The Commentator

Barack Brewster’s Millions

Who ya gonna call in November?

Films have often been vehicles for communicating complex ideas and philosophies in coded parables. The dreary films of Marxist filmmaker Ken Loach aren’t much more fun than ploughing through all three volumes of Das Kapital but they do, at least, take less time.

When, in The Shootist, John Wayne’s character, J B Books, says “I won’t be wronged, I won’t be insulted, and I won’t be laid a hand on. I don’t do these things to other people, and I require the same from them”, he was saying roughly what it took Robert Nozick 300 pages to say in Anarchy, State, and Utopia.

But I wasn’t expecting any such heft when I sat down to watch Brewster’s Millions at the weekend. As a child of the 1980s I might have seen this film around 20 times but this time I noticed something new in it; it is a parable for Keynesian economics.

It tells the story of washed up baseball player, Montgomery Brewster (Richard Pryor), who is left $300 million by an eccentric relative. There is one catch: first he has to spend $30 million in 30 days with absolutely nothing to show for it; “you’re not allowed to own any assets. No houses, no cars, no jewelry. Nothing but the clothes on your back!”

Brewster uses a raft of tricks to spend this money, some of which will be oddly familiar to anyone who has been watching economic policy making over the last few years.

Brewster’s first act is to go on a hiring spree offering vastly inflated wages. No, not public sector employees, but a team of security guards. Later he gets into his very own crackpot environmental, or ‘green tech’, scheme when he buys an iceberg with the aim of floating it to the Middle East to bring relief to supposedly drought stricken Arabian farmers.

“What thirsty Arab farmers?” his friend Spike (John Candy) asks, “There aren’t any, because there aren’t any farmers in the desert!” If only John Candy had been on hand before Barack Obama blew $535 million on Solyndra.

Finally he hosts an expensive exhibition game between his old team, the Hackensack Bulls, and the New York Yankees. The Bulls are kitted out in new uniforms and flown in by helicopter. Brewster should, of course, have re-designated some of the major roads in New York as special lanes for his game; then he could have wasted as much money as the London Olympics.

If it sounds fanciful to see any economics in this flurry of pointless spending, consider the words of John Maynard Keynes himself:

“If the Treasury were to fill old bottles with banknotes, bury them at suitable depths in disused coalmines which are then filled up to the surface with town rubbish, and leave it to private enterprise on well-tried principles of laissez-faire to dig the notes up again (the right to do so being obtained, of course, by tendering for leases of the note-bearing territory), there need be no more unemployment and, with the help of the repercussions, the real income of the community, and its capital wealth also, would probably become a good deal greater than it actually is”

A different attitude to wealth creation is on display in one of the classics of 1980s cinema, Ghostbusters.

Three government employees spend their days trying to seduce their students with phony experiments and running away from ghosts. When this dismal level of productivity proves too low even for the public sector they are sacked and go private, though not without misgivings.

As Ray Stanz (Dan Aykroyd) warns Peter Venkman (Bill Murray), “Personally, I liked the university. They gave us money and facilities. We didn’t have to produce anything! You’ve never been out of college. You don’t know what it’s like out there. I’ve worked in the private sector. They expect results.”

Spotting a gap in the market (“We are on the threshold of establishing the indispensable defense science of the next decade. Professional paranormal investigations and eliminations. The franchise rights alone will make us rich beyond our wildest dreams”) the three borrow some money and set up the Ghostbusters.

Soon they are raking in $5,000 a night, getting coverage from Larry King and Time magazine, and taking on a black member of staff, no affirmative action needed.

Then up pops Walter Peck of the Environmental Protection Agency. “I want to know more about what you do here” he demands. “Frankly, there have been a lot of wild stories in the media and we want to assess for any possible environmental impact from your operation, for instance, the presence of noxious, possibly hazardous waste chemicals in your basement. Now you either show me what’s down there or I come back with a court order!”

With Venkman an unlikely John Galt the government steps in, shuts down the thriving private sector enterprise, and the town is flooded with ghosts.

Where Brewster’s Millions is an object lesson in the wasteful uselessness of Keynesian economics, Ghostbusters is one of the most pro free market films ever made, a hymn to the genius of capitalism and the clumsy damage wrought by government.

Or, to quote another economist, Milton Friedman, “If you put the federal government in charge of the Sahara Desert, in five years there’d be a shortage of sand”

These differing attitudes are on display in the US Presidential election. With the American economy slowing to stall speedthe question each of the candidates must answer is “Where is the growth going to come from?”

With his background in law and ‘community organising’ it’s no surprise that Barack ‘Brewster’ Obama doesn’t know, pinning his hopes on ever more government spending of the Solyndra sort.

Mitt ‘Venkman’ Romney, by contrast, is at least paying lip service to private sector led growth of the Bain Capital sort. The difference is that Bain made money and Solyndra went bust. Do Americans want their economy run by Monty Brewster or the Ghostbusters? That will be the question this November

This article originally appeared at The Commentator

Forget LIBOR, QE is the real scandal

About ten days ago most people wouldn’t have known the LIBOR from an ice sculpture of Vin Diesel. Now the London Interbank Overnight Rate (the rate at which banks lend to each other overnight – not everything in economics is as obtuse as it sounds) is at the centre of a furious political storm and will soon be at the centre of a Parliamentary inquiry.

A flavour of the passion roused by Barclays’ actions came when the normally measured Mervyn King spoke of “the deceitful manipulation of a key interest rate.” This was especially striking coming from him as his job, Governor of the Bank of England, is all about manipulating interest rates.

And it was even more striking as he said this just as he was about to administer another dose of Quantitative Easing, £50 billion, taking the total so far to £375 billion since the scheme started in March 2009. That’s about a quarter of GDP.

QE’s stated purpose is to put money into banks and lower long term interest rates, spurring borrowing, investment, and economic growth. There hasn’t been much sign of this but QE’s defenders tell us that we have to compare what weak growth we do have with the cataclysm which would have befallen us without QE. We’ll never know.

But QE has had a number of definite effects. By handing over £325 billion to banks in return for long term assets QE has boosted the bank’s profitability and, of course, those bonus pots for executives. And it is not just any old long term security that the Bank of England has been buying but British government debt. This has had the handy effect of helping George Osborne keep gilt yields down.

While banks and the Treasury have done rather nicely out of QE, savers, particularly retirees, haven’t. The driving down of long term interest rates by QE has driven down annuity rates, which are linked to long term interest rates, by 27 percent since 2008.

As Simon Rose, from pressure group Save Our Savers says, “QE is government-sanctioned theft from those who are trying to make provision for themselves. It is wreaking havoc on pension funds with the National Association of Pension Funds reckoning QE has cost pension funds a massive £270 billion.”

That’s not to say that all pensioners are suffering. The fall in gilt yields has been accompanied by a rise in gilt prices (the two move in opposite directions) which is great news for anyone whose pension pot is invested in gilts. Like Charlie Bean and Paul Tucker, deputy governors of the Bank of England, who, thanks to the rise in gilt prices they engineered, saw the value of their pension pots rise by £1.04 million and £1.35 million pounds each last year to a total value of £3.56 million and £5 million respectively.

One effect QE hasn’t yet had is inflation. Yes, CPI has been above the Bank of England’s target range for two and a half years, but the inflation figures we have seen are way below what you might expect from an expansion of narrow measures of the money supply by an amount equal to a quarter of GDP.

Quite simply, the money pumped into banks via QE has stayed there. Banks have not lent it out, as Vince Cable keeps complaining, but if they ever did, if QE worked as the prospectus says it should, we would see inflation.

The diagrams below illustrate how this would work. Money is a tricky thing to define so there are several measures. We count the stock of notes and coins in circulation and call it M0. But there are bank current accounts which can be converted into cash quickly, so we add these to M0 and get the M1 measure. Add some deposit or interest-bearing accounts and we have M2, add some other deposits and we get M3, and add building society deposits and we have M4.

Figure 1 is a simple, stylised illustration of how these various measures of the money supply relate to each other, with the black box in the bottom left representing M0, red M1, orange M2, yellow M3, and white M4.

Figure 1

Figure 2 shows a situation where QE has doubled the narrow money measures of M0 and M1, but, either because banks are hoarding or individuals and enterprises aren’t borrowing, this has not filtered through into the broader monetary aggregates and appeared in inflation figures.

Figure 2

Figure 3 shows what would happen if the increase in narrow money shown in Figure 2 found its way out of the banks and into the wider money supply.

Figure 3

Assuming a proportional increase in broader monetary aggregates in response to an increase in narrow money to maintain existing ratios, a doubling of narrow money will lead to a doubling of broader money. Anyone who doubts the possibility of such a scenario in Britain ought to consider the effects of QE on the monetary base; it has nearly tripled since 2008.

NB: This graph shows the move from the situation in Figure 1 to that in Figure 2

This is the curious thing about QE; even if it works, it doesn’t. If banks do “use these increased deposits as the basis for increased lending to businesses and households” we will see inflation. If they don’t then there’s no point doing it.

Reflecting on Japan’s experience with QE in his book, The Holy Grail of Macroeconomics, Richard Koo argued that “As long as there are no borrowers, no amount of quantitative easing will harm the economy. But if the policy is continued after borrowers return to the market, it can lead to dangerously high money-supply growth and inflation”. The same applies with hoarding banks.

Koo called Japan’s QE a “non-event”. We ought to hope that ours is as benign, if it isn’t we’ll all feel the same pinch our savers already are. That, not LIBOR, is the real scandal.

This article originally appeared at The Commentator

Time for an economic Nuremberg for the last Labour government

The guilty men

ike an iceberg, the extent of the damage wrought by the last Labour government is still becoming apparent.

One of the wheezes Labour used to camouflage its vast spending spree was the Private Finance Initiative. These had been brought in by John Major’s Conservatives (to criticism from the then Labour opposition) and involved a private sector entity building something and then selling it or leasing back to the government over a number of years, usually decades.

Upon winning the election in 1997 however, Labour performed a volte face and embraced PFIs. They appealed to Gordon Brown because the liabilities taken on under PFIs would not show up on the government’s balance sheet. In other words, they wouldn’t be included in the national debt figure.

Labour signed up to an estimated £229 billion of PFI projects. That’s almost two and a half times the entire projected budget deficit for 2012 – 2013, or 16 percent of GDP.

And all of it was off the books. This enables Labour supporters to argue that “Public sector net debt (as a percentage of GDP) FELL from the start of Labour’s time in government until the beginning of the global financial crisis”. But, if you include the PFI liabilities the Labour government signed us up to, any fiscal improvement during their time in office vanishes and this already thin argument does likewise.

Perhaps Brown was stupid and/or hubristic enough to believe he really had banished “Tory boom and bust”. Perhaps he calculated that he would be long gone before the bills for PFI landed on the mat. Either way, while in the long run Brown is (thankfully) politically dead, we taxpayers are not.

Last week it emerged that six NHS trusts were facing bankruptcy thanks to the PFI deals struck by the Labour government. As the Telegraph reported

The total value of the NHS buildings built by Labour under the scheme is £11.4bn. But the bill, which will also include fees for maintenance, cleaning and portering, will come to more than £70bn on current projections and will not be paid off until 2049…Some trusts are spending up to a fifth of their budget servicing the mortgages…Across the public sector, taxpayers are committed to paying £229bn for hospitals, schools, roads and other projects with a capital value of £56bn”

Indeed, like the cat who leaves little ‘presents’ around the house for you to discover when you return from holiday, the Labour government of 1997 to 2010 is the gift that keeps on crapping on your carpet. We will be discovering fiscal turds left by Labour for literally decades to come.

If you were being charitable you would ascribe the fiscal incontinence of the Blair/Brown governments to some sort of Keynesian economic theory, though that fails to explain why they applied fiscal ‘stimulus’ for seven years to an already growing economy.

If you were being slightly less charitable you might ascribe it to incompetence of a quite staggering degree. The last Labour government, after all, were probably the biggest set of mediocre idiots ever to govern this country.

And, if you were being even less charitable, you might ascribe it to something more sinister – Brown poisoning the wells when he heard opposition tanks at the end of his strasse.

The architects of this national disaster have moved on. Blair is swanning around the globe earning millions. Brown is off brooding somewhere and probably enjoying it. Ed Balls, Brown’s right hand man through all this, is now, incredibly, Labour’s shadow minister for the economy!

We will have to live with the consequences of their mismanagement for years, why should they get away scot free? When we look at the continuing harm the Blair/Brown governments did to Britain shouldn’t we consider some sort of economic Nuremberg for these people? To punish them, Blair, Brown, and Balls, for the harm they have done to the British public?

Of course, you could argue that the electorate is responsible for electing these dangerous cretins. After all, every single majority Labour government in history has left office (in 1931, 1951, 1970, 1979, and 2010) with the economy in meltdown. Assuming that Labour voters aren’t so stupid that they don’t know this you have to conclude that they simply don’t care if the economy collapses.

In the wake of the Barclays rate fixing scandal, Ed Miliband has called for a full public inquiry into the banking industry, saying, “If you go out and nick £50 from Tesco, you are punished, at least we hope that you are punished – if you fiddle, lie, cheat to the tune of millions of pounds, you should also have the full force of the law brought against you.”

As Britain’s economy continues to smoulder isn’t it time for Miliband’s former colleagues in the wretched Labour government of 1997 to 2010, Tony Blair, Gordon Brown, and Ed Balls, to face a reckoning for the continuing damage they wrought upon the nation?

 

Overrated: Paul Krugman

“Snake oil, £14.99!”

When Friedrich von Hayek became a Nobel Laureate in economics in 1974 he said: “The Nobel Prize confers on an individual an authority which in economics no man ought to possess.” The truth of this is demonstrated daily by the case of Paul Krugman.

Krugman and his supporters whip out his Nobel Memorial Prize in Economic Sciences like a Top Trump of Diego Maradona. It is awarded annually — so why the special fuss about a prize Krugman won four years ago? His Nobel is being used to intimidate opponents. Any opposition to Krugman with his Nobel Prize is opposition to science itself.

Why Krugman generates so much opposition isn’t hard to fathom. From his perch in the New York Times he says one ridiculous thing after another. In the British context Krugman’s risible thesis is that the economy is struggling because the government isn’t spending enough money, that austerity is driving us back into recession, and that the solution to our debt crisis is to borrow and spend even more money.

But there is no austerity. British government spending has fallen from record highs by only about 1 per cent since the coalition took office. This has tipped us back into recession? Most private sector companies could save that by switching to cheaper copier paper.

Krugman argues that we need vast government spending to get us out of the recession. But Britain is running a budget deficit of more than 8 per cent of GDP, one of the highest in the developed world. The government is spending more than 400 million borrowed pounds every day; the national debt is increasing by more than £5,000 every second.

And yet, with all this extra borrowing and all this spending Britain’s economy is still tanking. Perhaps this suggests that massive deficit spending isn’t the answer. That’s one interpretation. Not for Krugman. To him the problem is that even the record levels of borrowing which will see Britain’s national debt increase by 60 per cent, from £1 trillion to £1.6 trillion, by the next election, are not enough. We need to borrow more. That, he claims, would solve our debt crisis.

Krugman’s new book (its recommended retail price an aggregate demand boosting £14.99) is called End This Depression Now! (Norton) as though that hadn’t previously occurred to anyone else. Indeed, it’s possible that if George Osborne decided to increase borrowing to 10 or 12 per cent of GDP we might have a quarter or two of growth. Labour managed to boost GDP growth to 1 per cent by dumping £160 billion of borrowed money into the economy.

But after that? Don’t ask Krugman. He follows John Maynard Keynes who, accurately but none too helpfully, observed: “In the long run we are all dead.” Actually, if you did ask Krugman, you might get a response like the one he gave when the dot com bubble burst: “To fight this recession the Fed needs . . . soaring household spending to offset moribund business investment . . . Alan Greenspan needs to create a housing bubble to replace the Nasdaq bubble.”

That worked out fine, didn’t it? Well yes, in Krugman’s terms it did. Sure, we are now living with the effects of the bursting of that bubble but we did get a few good years of rocketing property prices which made us all feel as though we were getting richer just by sitting in our homes. And now that bubble has burst we just inflate a new one somewhere else. And when that bursts we inflate a new one. And when that bursts . . .

This is where the Keynesian ignorance of the long run demonstrated by Krugman leads you: lurching from one catastrophe to the next with a series of increasingly expensive quick fixes of ever shorter duration which do nothing to address the underlying problems.

The economic problems of Greece, Spain, and Britain are not that the deficits of 7 per cent, 7 per cent and 8 per cent their governments are respectively running are not high enough. Greek labour costs are higher than elsewhere and Greece doesn’t export very much. Spain has unemployment of 24 per cent thanks to a labour market which makes job creation almost impossible. Britain is  already one of the most indebted nations on the planet.

These fundamental problems are ignored by Krugman and his followers. In his 1994 book Peddling Prosperity Krugman accused the supply-side economists of the 1980s of being “cranks” selling “snake oil” because, he said, they offered politically expedient economic non-remedies with no   basis in fact. Hypocrisy, thy name is Krugman.

As for that Nobel Prize, Paul Krugman won it for his work on international trade patterns, not his crackpot Keynesianism. Sir Paul McCartney won an Ivor Novello award for writing “Yesterday”. That doesn’t mean sentimental schlock like “Mull of Kintyre” is worth listening to.

This article originally appeared in Standpoint