Stiglitz: Osborne is “crazy”

Joseph Stiglitz has been interviewed by the New Statesman. He described George Osborne as "crazy" and "out of touch with reality".

Hot on the heels of his interview in yesterday’s Independent where he slammed “fiscal fetishism”, Nobel prize winning economist, Joseph Stiglitz has given an interview to the New Statesman in which he speaks frankly about the Conservative party’s economic policy and describes George Osborne as “crazy” and “out of touch with reality”.

The interview will appear in next week’s magazine but is trailed on The Staggers blog:

Nobel Prize-winning US economist Joseph Stiglitz says that he is “incredulous” at the Conservatives’ plans to cut spending. He describes Tory economic policy as “Hooverite” and dismisses as “crazy” and “fear mongering” the claim that Britain is at risk of defaulting on its debts.

His response to David Cameron and George Osborne’s plans to cut spending: “Incredulous. … We [Keynesians] had a victory for a year and then back come the Hooverites.”

On Conservative claims that Britain is at risk of a Greek-style debt crisis and risks losing its AAA credit rating: “I think it’s fear mongering and I think the notion that the rating agencies, which did such a terrible job over rating all these these products, that we should show deference to their judgement of good economic policy seems outrageous.”

On the suggestion, put about by George Osborne among others, that Britain is at risk of default: “I say you’re crazy – economically you clearly have the capacity to pay. The debt situation has been worse in other countries at other times. This is all scaremongering, perhaps linked to politics. Perhaps rigged to an economic agenda, but it’s out of touch with reality. One of the advantages that you have is that you have your own central bank that can buy some of these bonds to stabilise their price.”

An article in today’s Guardian outlines that, “George Osborne’s lack of experience rattles City” and suggests that Vince Cable could become Chancellor if the Tories win the election:

“One top City figure whispers that some Tories believe Osborne would be the big casualty. In his place? Vince Cable, the Lib Dem Treasury spokesman who trounced Osborne and chancellor Alistair Darling in combative exchanges during the banking crisis.”

4 Responses to “Stiglitz: Osborne is “crazy””

  1. Ving Faction

    I would just like to point out, in the spirit of Osbourne-bashing, that the heir to the Osborne baronetcy of Ballentaylor wasn’t christened as George, but as Gideon. You probably know this already, but it is, of course, nice to be reminded of these amusing facts.

  2. Tyler

    Stiglitz is a hardcore left winger. He very much has his own political view and agenda. Markets know this and on the whole don’t listen to a word he says.

    His comment about the BOE continuing to buy Gilts is to some extent true. But he is being obtuse at best if he doesn’t realise what the endgame to that is – higher rates (through inflation, risk repricing or a currency crisis. Or all three).

    Printing money is no substitute for sound financial management, and Stiglitz should know, as a Keynsian, that Keynes’ only advocated deficit spending in a closed system using money from budget surpluses won in times of growth. Given that Brown was overspending heavily even in times for growth, it’s no surprise that now we have a massive budget deficit, which is threatening confidence in the UK.

    Rating agencies don’t really matter – not least because they are always reactionary and backward looking. If the UK gets downgraded, the market will have led the way and it will be too late already.

    So whilst Osbourne might have his argument a little mixed up, he is still essentially correct. If we continue to go on as we are, we could easily end up in a situation like Greece (who have a smaller budget deficit and debt/GDP ratio than the UK) or worse still (continuing down the QE path) Japan, who have had low rates and almost no growth for 25 years.

    The most vibrant and fast-growing economies in the world all have something in common. Low deficits and smaller debt stocks. High deficits mean high debts mean high tax means lower growth in the future.

    It has to be repaid. Why can’t people understand that?

  3. Chris Cook

    @Tyler

    Stiglitz is left wing only relative to the right wing Voodoo economists of whom you seem to approve so highly despite the complete lunacy of their approach.

    You – and Stiglitz – both labour under the misapprehension that creating public credit (aka QE – which is NOT a debt instrument) is somehow wrong when governments do it, but quite all right when private banks do it -as they have for 300 years, ruinously. The problem is that private banks have become accustomed, when times are good, to outrageous management pay and huge dividends to shareholders to the cost of credit (system costs and default costs), thereby inflating the price: when times are bad, the public sector has to stand behind the banks and bail them out, socialising the losses, as investors and management count their privatised profits.

    Governments can and should create the public credit necessary for the creation of public and private productive assets – such as affordable housing, renewable energy and new public infrastructure – and guarantee its performance, for a fee.

    This process should be the subject of sound financial management, as you say, possibly by banks as service providers (rather than credit intermediaries) provided they have a stake in the outcome.

    Just because money=credit is being electronically created (‘printed’) does not mean that it is necessarily being lent or spent into circulation. As we see, it isn’t.

    QE as currently pursued serves to keep financial asset prices pumped up for the benefit of the already wealthy, albeit with the useful side-effect of preventing the economy sliding into the deflation and depression which would be the inevitable result of the Voodoo economics you advocate.

  4. Why do left wing hacks refer to Tory Policy as ‘Hooverite’? : ByrneTofferings

    […] of the claims are bizarre. Firstly; Hoover didn’t “do nothing.” That’s historically incorrect. From […]

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