This week’s economic news

So, Friday saw the FTSE 100 hit its highest mark,  since September 2008 – up 4.6 percent on the week and 11 percent since Feb. 5. And in the US, February’s unemployment held at 9.7 percent – some 2pc higher than in the UK –  (see Bloomberg). US payrolls dropped by 36,000 last month but the jobless rate has now been stable since October.

Against this backdrop, I saw three interesting comments on the risks of beginning to cut the deficit too soon.

President Obama’s chief economic advisor Dr Christina Romer (Statement on the Employment Situation in February) argued:

‘[A]n unemployment rate of 9.7 percent is unacceptably high and we need to achieve robust employment growth in order to recover from the terrible job losses that began over two years ago.  That is why it is essential that Congress pass additional responsible measures to promote job creation.  It is also vital that we continue to support those struggling with unemployment…’

A few economists have been underlining this argument for continued government support for the economy. Jospeh Stiglitz this week argued (Commentary, NY Times):

‘Most economists … agree that it is a mistake to look at only one side of a balance sheet (whether for the public or private sector). One has to look not only at what a country or firm owes, but also at its assets. This should help answer those financial sector hawks who are raising alarms about government spending. … Spending, especially on investments in education, technology, and infrastructure, can actually lead to lower long-term deficits. …

And earlier in the week, James Galbraith made a similiar point;

‘the deficit phobia of Wall Street, the press, some economists and practically all politicians is one of the deepest dangers that we face. It’s not just the old and the sick who are threatened; we all are. To cut current deficits without first rebuilding the economic engine of the private credit system is a sure path to stagnation, to a double-dip recession–even to a second Great Depression. To focus obsessively on cutting future deficits is also a path that will obstruct, not assist, what we need to do to re-establish strong growth and high employment. …’

Cutting the deficit too soon – as the Tories here propose, would simply be an economic disaster.