Wednesday, 24 February 2010

Growth economics and economic nationalism

Robert Solow is definitely one of the heroes of growth economists and economic historians alike, and thus one of my heroes. He signed the FT letter against cutting too soon the government deficit in the UK. Of course. Strangely enough, in Portugal only the far left is widely supportive of a similar position. What happened to our growth economists? Why do most well trained economists in Portugal say that the current
deficit problems are simply the cause of bad government and are asking for dramatic deficit reductions? What about the effects on the recovery? Where does this strong preference for financial discipline come from? Is this all about fear of foreign intervention?
That was the kind of feelings we had in Portugal in the aftermath of the 1891 financial crisis, the one that led to the abandonment of the gold standard and to partial default in the foreign bond markets. Is it the case that those feelings are still present today, despite the fact that Portugal joined the euro? Or are they back again because Portugal joined the euro? Maybe a similar set of questions can be asked to the economists that signed the other letter, published in the Sunday Times, asking for a rapid reduction in the British government deficit. There are of course bits of good economics behind the two positions - but also political motivations. I wonder what drives the latter.

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