December 12th, 2008

How could anyone disagree with the lectures to Gordon Brown from various conservative German paragons of fiscal rectitude? This worked so well in 1930-1933.

Update: I see Paul Krugman was already on Herr Steinbrück’s case.


I’m really puzzled by the fears from the German CDU (update: and SDP!) and British Tories about excessive borrowing in the recession. Britain’s current debt-to-GDP ratio is under 50%. In 1815 it was 290%. In the years following the end of the Napoleonic wars, over half the British central government budget went on servicing this debt: £31.1m out of £57.5m in 1820.

Did stagnation or disaster ensue? Not exactly. The next half-century saw Britain’s relentless rise to the first industrial superpower. Of course, with negligible social expenditures, regulation of business, or law enforcement, the country was a libertarian paradise: reeking and crime-infested slums, financial panics, plagues, and in Ireland, famine. But that does not affect the existence proof that a dynamic economy is compatible with much, much higher levels of public debt than anything being considered now.

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