Monday, October 25, 2004

Test post

This is a test. I'm including some text from an interview conducted last Monday with Louis Wells of the Harvard Business School.

Unfortunately, when it was front paged on openDemocracy the letter concerned was described as being from economists rather than from business school professors, which is a bit like describing anthropologists as linguists

Caspar Henderson Randall Kroszner at the University of Chicago refused to sign the letter. He told a journalist at Business Week that the letter ignores or dismisses factors outside the control of the Bush administration such as corporate governance scandals, the 2001 recession, and the costs of the “war on terror”. Kroszner says the assumption that a deficit leads automatically to higher interest rates and inflation is simply wrong.

Louis Wells It’s not a very careful response to what the letter actually says. The letter does not say short-term deficits are bad. Keynesian ideas are deep enough that most of us think it’s OK to run short-term deficits in a recession. As long as the economy is not fully recovered, it’s clear that deficits needn’t lead to higher interest rates.

What bothered those who did sign the letter is the permanency of the tax cuts and therefore the likelihood that the deficits will continue on into a recovery.

Obviously the economy will recover at some point. But if we continue to run big deficits there is large inflationary pressure, which means monetary policy is the only stabilising tool and the only way to counteract the pressure is by tightening money supply, leading in turn to higher interest rates. I think that’s pretty widely accepted.

Kroszner has jumped on the short-term part and I don’t disagree with him. In the short term you do not get higher interest rates. But he’s ignored the main issue.

Caspar Henderson Do you accept that this is a very political letter? After all, you are saying a candidate for president of the United States is wrong, and many people would draw the conclusion that you’re saying he shouldn’t be re-elected.

Louis Wells That’s up to somebody who reads the letter. We did not endorse a candidate unlike the ten Nobelists who wrote a letter in support of John Kerry.

The full article can be found here:

1 comment:

Caspar Henderson said...

Test to see how this works