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Spend and spend some more?

October 21, 2008

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.

Pennies
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?

Comments

The best way to get out of this recession is for the public to paticipate and spend as much as they can afford in order to kick-start the economy.

Posted by Andrew C | Report as abusive
 

I don’t pretend to be a clever bunny like a politician or a journalist, but I can’t recall from my inadequate education, and can’t find any record of, Keynes ever saying “In the good times spend money that you haven’t got and in the bad times spend even more money that you haven’t got”.

But this is what Bottler and Badger are doing.

Could this reference to Keynes be a hybrid economic theory of Keynes crossed with Marx? A kind of “Nu Way”? Or a bit of gentle spinning to give a veneer of legitimacy to the actions of a destructive government?

Or maybe I’m just stupid and can’t hope to see the wisdom of these people. It’s a good thing I got my bit of money out in time.

Posted by Jason | Report as abusive
 

Whatever happened to the steady hand on the tiller, no more boom and bust, and all those other cliches?

This lot are simply acting out of blind panic now, because the truth is they haven’t got a clue.

Posted by Matthew | Report as abusive
 

Let’s make Darling’s statement personal – “What I want to avoid is getting myself in a position I have been in the past where I face an immediate problem and (so) cut back on the things I will need in the future”. So let’s see – a new car, a new wardrobe and a conservatory, just for starters. Put it on the credit card and never mind the looming bankruptsy. But isn’t this the reason we’re all in this mess right now? What does Darling want to do, bankrupt the country twice?

Posted by Richard Thomson | Report as abusive
 

I think we should give Darling some credit – he isn’t following an idea laid out by an incredibly wise economist for nothing. Ploughing money back into the economy is likely to create public sector jobs, which in turn gives some purchasing power to those gainfully employed, who in turn spend on necessities…you see my point. Don’t trash it until it’s been tried.

Posted by metrika | Report as abusive
 

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