Insights from the UK and beyond
Spend and spend some more?
Recent headlines alarmed us with news of the country’s budget deficit having risen to its largest in six decades, while top economists ominously declared that we’ve moved beyond merely tipping into a recession, to hurtling towards one.
More crucially, both Chancellor Alistair Darling and Prime Minister Gordon Brown have sought inspiration from revered economist Maynard Keynes’ oft-cited advice – spend and spend some more to fight off the ill effects of an economic slump. Keynesian theory’s greatest principle is the fundamental concept of the circular flow of money. He opined that when individuals rein in money outflow, the government needs to be “priming the pump”.
Brown and Darling insist that we may very well fall prey to a vicious circle if we curb spending – most people hoard money in turbulent times, but times become even more difficult when we’re tight with money. Whether this theory will work remains to be seen.
In November’s pre-budget report, Darling is expected to announce an easing of fiscal rules and outline plans for priority and targeted spending on infrastructural projects. “What I want to avoid is getting ourselves in a position governments have done in the past, where you face an immediate problem and cut back on the things the country will need in the future … ,” says the Chancellor.
Close on the heels of his declaration comes U.S. Federal Reserve Chairman Ben Bernanke’s statement to Congress supporting the idea of a second wave of spending. Gearing up for Round Two in the feverish economy rescue battle no doubt.
Could fast-tracking future governmental spending plans provide a fillip to productivity and create job opportunities at a time when forecasts peg the unemployment figure to hit 2 million by end-2008? While staving off unemployment won’t hold good as a sole justification in light of a worrying debt-to-national income-ratio, expanding money supply can put a little power back in the hands of people. Might it restore some strength to the fragile confidence of today’s fraught consumer? What do you think?