National Debt: surprising thoughts from a surprising source (…maybe)

In a previous blog we considered those shrill voices in politics and the media who bewail the threat to our very way of life posed by having a “too high” level of National Debt; and finished with Will Hutton’s sensible observation that we seem to have forgotten that the National Debt is rather more our servant than our master.


Prior to this I have referenced, on more than one occasion, the radical (well, radical by the yardstick of conventional free-market economics) ideas coming from not just the fringes of economics (think Manchester University undergraduates demanding that their degree course includes robust critiques of the ‘economics as mathematics’ religion) but, increasingly so, from those whom one might regard as mainstream commentators. Economists such as Martin Wolf of the FT being one of these.


Well, it seems that things might be about to become a whole lot more interesting. The Guardian and the Wall Street Journal have, today (02 June 2015), picked up on a blog post released by several of the IMF’s research team – including the Deputy Director of the Research Department, Jonathan Ostry.


Now, it is actually an established practice for IMF economists to release what we might call ‘thought leadership’ articles. They are called ‘Staff Discussion Notes’ – a lovely bland title which quite underplays the fact that these papers can contain some very interesting (and perhaps deliciously radical) ideas. Because of which the IMF is at pains to point out that such papers represent the views of the authors alone and are not to be taken to represent IMF views – but I wonder….


So, what is the latest paper which has so caught the attention of The Guardian’s Katie Allen and David Wessel of the Wall Street Journal? Well therein lies a problem, and one of the reasons for writing this blog. The paper itself appears to have been removed from the IMF’s blogs website. Why? Who knows. Perhaps a temporary IT glitch or a broken link; or perhaps this is just a little too incendiary?


You see, the gist of the paper (according to Katie and David) is that whilst some countries really are struggling under the future risks (my phrase) of what ‘the markets’ (whomever they are) judge to be excessive debt there could well be a good number of other countries who should not worry about it.


I know – what? That’s right. For some countries (and the Wall St Journal identifies the USA as one such country and The Guardian identifies the UK) “…the cure may be worse than the disease: paying down the debt would require further distorting the economy, with a corresponding toll on investment and growth.”


Further, the authors claim that “While there are some countries where clearly debt needs to be brought down, there are others which are in a more comfortable position to fund themselves at exceptionally low interest rates, and which could indeed simply live with their debt (allowing their debt ratio to decline through growth or windfall revenues)….”

(thanks to The Guardian for these quotes).


Gosh! (Or perhaps I should spell it Ghosh as Atish R Ghosh is one of the joint authors). Let’s get this straight. The IMF, an organisation which has been criticised by many across the political spectrum for being too narrowly focussed upon the supposed benefits of liberalisation and cutting government expenditure (so much so that its critics say that IMF stands for ‘Its Mostly Fiscal’) It is now saying that the sky will not fall in for certain countries if they choose to ignore their national debt.


As the Wall Street Journal robustly puts it: “..this isn’t the first time that the IMF has slapped down the austerity crowd. It has, for instance, made the case for borrowing more to finance public infrastructure. Nevertheless, this is an eyebrow raising moment.”

I wonder if the Chancellor has seen this?


If you would like to learn more on the subject, please contact Stephen Gregson.