BERKELEY – Neville Chamberlain is remembered today as the British prime minister who, as an avatar of appeasement of Nazi Germany in the late 1930’s, helped to usher Europe into World War II. But, earlier in that fateful decade, relatively soon after the start of the Great Depression, the British economy was rapidly returning to its previous level of output, thanks to Chancellor of the Exchequer Neville Chamberlain’s reliance on fiscal stimulus to restore the price level to its pre-depression trajectory.

Tim is confused and I share this confusion:

Our Neville became Chancellor in 1931.

Whereupon he got us off the gold standard and cut government expenditure.

It was a couple of years later, when the currency devaluation thing had done its stuff that he started to expand spending again.

I’ve not got the numbers for the deficit or national debt in those years. But the idea that Our Nev did “fiscal expansion” in 31, 32, seems very strange indeed. Anyone know?

So, was Neville Chamberlain to the left of Clegg and Co or is Timmy correct and Brad DeLong doing economic history wrong?

Luckily I don’t have to adjudicate this – I’ve brought the cavalry for Tim, someone even Brad will not snark at - Nick Crafts has the answer (via). There was fiscal stimulus from 1935 as rearmament kicked in, but from 1932 onwards taxes were raised, spending cut and debt stabilised:

Over fiscal years 1932/33 and 1933/34 the structural budget deficit was reduced by a total of nearly 2 per cent of GDP as public expenditure was cut and taxes increased, the public debt to GDP ratio stopped going up while short term interest rates stabilized at about 0.6 per cent. Yet, from 1933 to 1937 there was strong growth such that real GDP increased by nearly 20 per cent over that period…Fiscal stimulus was not a factor in the UK recovery until after 1935 when rearmament began.

The secret was no secret at all, and is alluded to by Tim. It was unconventional monetary stimulus to raise the price level back to pre depression trends. This raised inflation expectations, pushed down interest rates, and promoted consumption and investment, et voila, the UK grew 20% over 4 years in the face of fiscal contraction.

Something similar today from the Bank of England, like price level targeting or NGDP level targeting would get some life into the British economy, and save us all a lot of bother and suffering.

PS: Other quotations from this paper to warm the cockles of Timmy’s heart include…

A major way in which [easy money] stimulated the economy was through its favourable impact on housebuilding in an economy without strict planning rules; the private sector built 293000 houses in the year to March 1935.

When Henry Ford built his car plant he realised that unless the product he made was cheap enough for the workers to buy then there was no point in building it: there was no market to supply. This was the basis of Fordism.

Nope. The main element of Fordism is mass production of standardised products and scientific management of that process. The high wages were added later and not for the reasons Richie gives.

The high wages typically associated with Fordism were efficiency wages, wages paid to ensure people continued to work hard even though they were being managed intensively and told exactly how to do a boring repetitive job by annoying people with clipboards. Always with the clipboards.

After introducing the production line Ford was annoyed that his very profitable company was suffering because of high labour turnover and worried because this high turnover was damaging productivity. He was not worried that his potential market was not big enough.

The US economy was the richest country in the world, growing strongly and still attracting lots of migrants, his market was secure and he was always bloodymindedly sure that meant the US would need cars, lots of cars.

He decided to do the sensible thing and offer more money to his workers. That this enabled his workers to afford to buy one of his cars was incidental to the logic behind the move, although it made for good propaganda.

He didn’t do this to increase the size of his market, but because people tend to work harder for more money. Don’t take it from me though, a lowly blogger, try Larry Summers and Daniel Raff:

Ford’s decision to increase wages dramatically is most plausibly portrayed as the consequence of labor problems of the kind stressed by efficiency wage theorists. The structure of the five-dollar day program is consistent with the predictions of efficiency wage theories. There is vivid evidence that the five-dollar day resulted in substantial queues for Ford jobs. Finally, significant increases in productivity and profits at Ford accompanied the introduction of the five-dollar day.

 Moral of the story: don’t go valorising old capitalisms.

In 2005 Cameron suspected the next election wouldn’t be for five years – and he turned out to be right. But he nearly had to fight an election in 2007 against a newly inaugurated Brown. This is something he had to expect and prepare for from the day he was elected Tory Leader, because we all knew some sort of hand over from Blair to Brown was imminent and that this may have been followed by an election.

This meant that Cameron spent a lot time and effort trying to appear electable, trying to appear “in-touch” by visiting the arctic, liberal by hugging hoodies and as a better heir to Blair than Brown could ever be. All this was essential when Labour could have called an ambush election at any point.

Tean Miliband seems to be employing a similar tactic. Liam Byrne is fighting to appear tough on benefits claimants, Ed Balls is trying to sound more fiscally conservative, even Diane Abbott is doing her best to swiftly cover up her gaffes. The commetariat are also playing along, they want to know if he is too ugly to be prime minister etc. Cameron moved left while Ed is moving right.

All of this is stupid. As Sunny has been documenting, not only is nuance from Labour Wonks confusing the public, those who aren’t confused couldn’t care less anyway. I have a better plan for Ed, to be in operation for the next three years or so, or at least until a year before the election date. Her Majesty’s Loyal Opposition should officially and unequivocally object, to everything, even good ideas, loudly and often.

First of all, this is essential to good governance. A noisy opposition ensures that a Government has to advance the strongest arguments for its policies and ensure the sharpest execution for fear of being lambasted. If all Tory mistakes are leapt on with gay abandon then the Tories will make sure they screw up less. Remember the incorrect list of schools Gove released last year? That is what happens when people are not terrified of screwing up.

Even where this policy would be a trap it is good policy. For example, Miliband will gain almost no votes by opposing capping benefits at £26,000, but he won’t lose any votes either because, and this is important, nobody is voting until 2015.

Any damage supporting bad policies or opposing bad policy while in opposition can be shrugged off because the opposition won’t have done anything because they can’t. Wrong calls can be disowned and vote winning stances embraced as manifesto fodder. A manifesto which won’t need to be published until 2015 because, I repeat, that is when the next election will be. Plus, by being the voice of opposition Labour would be able to build an activist base which will be important in getting out the vote and campaigning come election time.

By playing the old game, where an opposition has to be constantly on the alert for an election Labour are strengthening the Tories, and doing damage to people’s lives. They need to shape up and realise the rules have changed.

With a scoop headlined “Senior Labour adviser defects to the Tories”, readers of Monday’s Independent  were left in no doubt as to the gravitas of party operator Luke Bozier. But the story left one group grinning mirthfully at their BlackBerrys: anyone who had worked in Labour HQ or 10 Downing Street during the tenure of the “Blairite former Labour official”.

With Dan Hodges blogging that Bozier “worked for the party for a while, but not at an especially high level”, Scrapbook can confirm Luke was, in fact, a junior staffer on only the second rung of a five-level corporate structure.

A five level corporate structure of advisers? I do wonder how a party claiming to represent working people - and which more or less did so in the not too distant past - ended up swallowing this corporate, management bullshit so entirely.

The pretense of knowledge is a lot less pretense-full when you have a 1 Terabyte portable Hard Drive and GIS mapping software.

In all seriousness, Karl has a point. While we should always be sceptical of how much we really know, we should always do our best with what we do know.

When it comes to macroeconomics, in the US, all signs point to free lunches sitting everywhere if only for a little more nominal expenditure, and hopefully Karl can elaborate on this soon.

My real beef with what Abbott said is precisely because of the “context” that she protests her tweet was taken out of. I don’t like the way she rejects Bim Adewunmi’s point.

Questioning the merits of a set of “community leaders” (black or otherwise) is not on any meaningful continuum with the tactics and values of 19th-century colonialism. And the suggestion that black people shouldn’t criticise their so-called “community leaders” for fear of being seen to “wash [their] dirty linen in public” is depressing.

Yes.

AIG, GM and Chrylser, that’s where the losses are.

The banksters aid, turned a profit.

I think the easiest way to show this to be silly is to compare this bailout ex ante and ex post. Before the bailout the financing cost for banks was through the roof, after the bailout it began to converge with that of the soveriegn government doing the bailing.

In Ireland, a tiny economy with a big banking sector, the government’s interest rate converged up to that of its banks, in the UK, Europe and US banks’ borrowing costs converged down towards that of the government funding them.

This happened because the government assumed all the downside risk and associated financing costs of these banks. It almost bankrupted Ireland and made tidy profits for bankers living in jurisdictions with large tax bases at those large tax bases’ expense.

As Steve Randy Waldman riffs on the same topic:

But who has lost anything from the bailouts? Wasn’t it a win-win? This all sounds very abstract. Where are the transfers?

If the government borrowed or printed a trillion dollars and gave the money to me, would there be any losers? If you don’t think there has been a wealth transfer, if you don’t think ordinary people have lost, please call your Congressperson and ask her to cut me a trillion dollar check.

Indeed, can I have a trillion dollars Tim? If I can, I promise to pay it back in a few years, and if I can’t then we’ll just call it quits.

Rightwingers, please, fall out of love with finance and think a little.

Once again, Left Outside brings you quality programming. But does it matter that today’s video is sponsored by Nokia or that yesterday’s video was sponsored by Zapata Racing? [1]

I don’t think it really does.

A lot of great art has been sponsored by rich people or by religious powers or by wealthy and powerful statesmen. That art is now produced by private companies isn’t much of a step down. For example, I’d rather be sponsored by Nokia than the pope, or WordPress (hello!) than Henry VIII.

A polarisation in wealth might pose many problems for many things, mental health, macroeconomic stability, cosmopolitan theories of justice, but art? No. I think inequality might be good for art, or at least neutral.

There seem to be two contrasting currents to art, one is very rich people sponsoring art the other is people of reasonable means taking up art for fun. I don’t know which dominates. But I don’t think we’ve really had any significant stagnation in aesthetic life for the last couple of centuries so . [2]

So, art in corporate hands. Not ideal, but probably not any different to anything that has happened before, nor any worse than any other set up that we’ve seen. [3]

___

[1] Your humble blogger uses a blackberry and I don’t know what the hell Zapata do, so I’ve no horse in this race.

[2] other than that period where we built hundreds of hideous concrete buildings after the war.

[3] Okay, so the analysis on this site has suffered of late, but I’m trying.